10-QPeriod: Q3 FY2011

BERKSHIRE HATHAWAY INC Quarterly Report for Q3 Ended Sep 30, 2011

Filed November 4, 2011For Securities:BRK-BBRK-A

Summary

Berkshire Hathaway Inc. (BRK-B) reported its third-quarter and nine-month results for the period ending September 30, 2011. The company demonstrated resilience and growth across its diverse business segments. Notably, the acquisition of The Lubrizol Corporation in September 2011 significantly expanded the manufacturing, service, and retailing segment. While investment and derivative gains/losses introduced volatility in reported earnings, particularly due to equity index put options, the core operating businesses, including insurance, railroad (BNSF), utilities, and manufacturing, showed robust performance. Shareholders' equity saw an increase, supported by profitable operations and strategic capital allocation. The company also initiated a share repurchase program, signaling confidence in its intrinsic value and a commitment to returning capital to shareholders when opportunities arise. Overall, Berkshire Hathaway maintained its strong financial position, characterized by substantial liquidity and capital strength, positioning it well for continued growth and value creation.

Financial Highlights

29 data points
Beta

Revenue

$33.74B

Net Income

$2.28B

6.8% Net Margin

EPS (Diluted)

$1380.00

Total Assets

$385.49B

Cash & Equivalents

$34.78B

Free Cash Flow

$3.77B

Financial Statements
Beta
Revenue$33.74B
Operating Expenses$30.38B
Operating Income$5.95B
Net Income$2.28B
EPS (Basic)$1380.00
Shares Outstanding (Basic)1.65M

Key Highlights

  • 1Acquisition of The Lubrizol Corporation for approximately $8.7 billion completed in September 2011, significantly expanding the manufacturing, service, and retailing segment.
  • 2Net earnings attributable to Berkshire Hathaway shareholders for the nine months ended September 30, 2011, were $7.21 billion, a decrease from $8.59 billion in the same period of 2010.
  • 3Total revenues for the nine months ended September 30, 2011, increased to $105.73 billion from $100.02 billion in the prior year period, driven by strong performance in BNSF, manufacturing, and other businesses.
  • 4Insurance underwriting operations showed mixed results, with GEICO experiencing premium growth, while the Berkshire Hathaway Reinsurance Group (BHRG) faced significant catastrophe losses in its property/casualty business.
  • 5BNSF (Railroad) revenues increased by 16% for the first nine months of 2011, driven by higher average revenues per car/unit and increased volumes in several product groups.
  • 6The company initiated a new share repurchase program authorizing the repurchase of Class A and Class B shares at prices no higher than a 10% premium over book value, subject to maintaining a minimum cash reserve of $20 billion.
  • 7Consolidated shareholders' equity increased to $159.96 billion at September 30, 2011, from $157.32 billion at December 31, 2010.

Frequently Asked Questions

The acquisition of The Lubrizol Corporation in September 2011, for approximately $8.7 billion, was a significant event. It was primarily reflected in the 'Manufacturing, service and retailing' segment, contributing to revenue growth. Pro forma consolidated earnings data suggests that if the acquisition had occurred at the beginning of 2010, net earnings attributable to Berkshire Hathaway shareholders for the nine months would have been $7.61 billion in 2011 and $8.82 billion in 2010, indicating a potential dilution from the acquisition itself when viewed on a pro forma basis compared to the actual reported results.

Investment and derivative gains/losses introduced significant volatility to Berkshire Hathaway's reported earnings. In the first nine months of 2011, the company reported net investment and derivative losses of $903 million, heavily influenced by pre-tax losses of $1.4 billion from equity index put option derivative contracts and $322 million in other-than-temporary impairment losses on certain equity securities. In contrast, the prior year period saw net investment and derivative gains of $507 million, boosted by a one-time holding gain of $979 million from the BNSF acquisition.

The initiation of a share repurchase program in September 2011, authorizing repurchases of Class A and Class B shares at a price no higher than a 10% premium over book value, signals management's confidence in the company's intrinsic value and its commitment to capital allocation. This program provides Berkshire with flexibility to return capital to shareholders when shares trade at a discount, provided that consolidated cash equivalent holdings remain above $20 billion. This reflects a strategic approach to enhance shareholder value while maintaining financial strength.

The insurance segment showed varied performance. GEICO experienced an 8.3% increase in premiums earned in the third quarter of 2011 and a 7.4% increase for the first nine months, alongside an underwriting gain. However, the Berkshire Hathaway Reinsurance Group (BHRG) reported substantial catastrophe losses, leading to an underwriting loss for the first nine months of 2011. There was also a significant after-tax gain of $855 million in the third quarter from a reduction in estimated liabilities related to retroactive reinsurance contracts, which positively impacted the overall underwriting results for that period.